Most transponders antenna (spam can types) are a ground plane mounted on the bottom of the airframe. The ground plane, or the skin of the plane, provides shielding to other antennas. Transponders transmit a very short pulse at about 200 watts.

A lot of Composite planes are using dipoles as their Transponder antennas ( foil antennas, circuit card antennas). There is no ground plane, so there is no shielding to other antennas.

If a GPS receiver/antenna is in near proximity to the Transponder antenna, the RF signal from the transponder could be swamping the front end of the GPS.

Recommendation:

To see if the transponder is indeed causing interference, turn it off and see if the GPS problem clears up. Keep in mind you probaby won't see instant results, as the GPS will need to reacquire.

One comment on altitude: The higher you go, more radar ground stations are pinging your transponder and causing it to transmit. Your transponder only "pulses" when it sees that a ground radar has swept past it.

If your using one of the foil or circuit card antennas for the transponder, get the GPS antenna as far as possible from the transponder antenna.

If you have a hand held GPS that the you can use a remote antenna, Try it. Also check if your hand held antenna is a "powered" antenna. These have a small amplifier in them and allow the antenna to be placed 10 or 15 ft away from the actual receiver.

Given that GPS is a space based, not a ground based navaid, this theorization just doesn't make sense. Signals should be (ever so slightly) stronger the higher you climb.

Sorry if what I wrote was confusing, but I didn't mean to imply that you get a weaker signal as you go higher - I used the word "or" (deteriorates as you get higher or have weaker signals) meaning in either condition the problem of the GPS dropping signals might occur.

The active antennas have circuitry in them to boost or amplify a weak signal and that is all I was trying to convey. As I said, I have no idea if the ground plane idea is valid or not with a passive GPS antenna.